Case Studies
Case Study: Navigating Canada’s Deferred Capital Gains Rate Increase
How a Canadian investor can adjust strategy amidst deferred inclusion rate changes effective January 1, 2026.
By NomadicTax Research Team • 5-8 min read • March 8, 2026
## Background: Canada’s Capital Gains Inclusion Rate Reform
- Canada proposed increasing the **capital gains inclusion rate** from **one-half (50%) to two-thirds (≈66.7%)** on gains above $250,000 annually for individuals, corporations, and most trusts, effective **January 1, 2026**. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
- However, the implementation of that change has been **deferred**, with the government confirming that all capital gains realized up to and including December 31, 2025 will continue to be taxed under the **half-inclusion rate**. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
- Other related measures—raising the **Lifetime Capital Gains Exemption (LCGE)** to **CA$1.25 million** and the new **Canadian Entrepreneurs’ Incentive** (reducing inclusion rate to **one-third** on up to $2 million in eligible gains for business owners)—remain proposed under earlier notices. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
## Case Example: Investor Planning in 2025–2026
**Meet Raj**, an individual in Ontario expecting to realize **CA$300,000** in capital gains from a cottage sale and stock trades by end of 2025. How should he plan?
| Strategy | Outcome under Current Rules (50% inclusion) | Projected Outcome Post-Change (Pending, 66.7% inclusion) |
|---------|---------------------------------------------|-------------------------------------------------------------|
| Realize gains in 2025 | Taxable capital gains: $300,000 × 50% = **$150,000** | NA (deferred) |
| Wait till 2026 to realize gain | Under new law: $300,000 × 66.7% = **$200,100** | Higher tax liability |
| Use LCGE / Entrepreneur Inc. gains | Gains below LCGE exempt; Entrepreneur Incentive applies to business-eligible capital gains |
So, by realizing gains by late 2025, Raj benefits from lower inclusion; delaying may lead to significantly higher taxes.
## Actions to Take Before January 1, 2026
- **Lock in gains** in 2025 for major non-business or non-trust capital dispositions to benefit from lower inclusion rate.
- If eligible, structure gains under the **Entrepreneurs’ Incentive** to reduce inclusion rate to one-third.
- Use **LCGE** strategically—sales of qualifying small business shares or farming/fishing property.
- Discuss with estate/trust advisors: inclusion changes also affect how trusts/corporations plan dispositions and distributions.
## Compliance Considerations
- Taxpayers should use the correct forms meant for **2025 accounting** and plan for change from **January 1, 2026**; CRA warns that forms/software will reflect the old rate until further notice. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
- Maintain documentation for eligibility for LCGE or Entrepreneur Incentive.
- Keep track of year of disposition dates precisely—especially for real estate or private company shares where transfers may span calendar years.
## Conclusion
Canada’s deferred implementation gives taxpayers a window to strategize. Realizing large capital gains in **2025** may offer lower tax exposure compared to waiting. For business owners and trusts, the Entrepreneur Incentive and LCGE produce powerful tools. Stay tuned for final legislation, and get advice early to optimize outcomes.